It's in Victoria's interest to get fracking at once

Energy is a hot-button issue this month.

There's the gallows humour from the Gillard appointed Climate Change Authority (CCA), which the Abbott Government is to abolish.  CCA argues that the 5 per cent carbon emission reduction policy shared by the ALP and the Liberals brings insufficient damage and should become 15 per cent.

And in Victoria, former Commonwealth minister Peter Reith's report on gas, features "unconventional" coal seam and shale gas mining policy development, which the government has banned.  In a separate article, Reith together with Paul Howes and Innes Willox discuss the need for early action to remove the ban.

Unconventional gas is identical to conventional natural gas, and is released by "Fracking" — that is, hydraulically fracturing gas pockets.  Predictably, green groups have led the opposition to fracking technology on environmental grounds.  Interestingly, though, that opposition has not extended to fracking used to produce their poster-child energy from hot rocks.

Fracking has been claimed to adversely impact water supplies, cause earthquakes, bring combustible gas through domestic plumbing systems and soon.

Like others before it, the Reith report shows that these claims of environmental distress are baseless.  In the US, the green-infused Environment Protection Agency has conducted many inquiries into such allegations but, even though at least 30,000 wells are in production, it has found no damage.

In NSW, farmers have claimed that Fracking conflicts with the use of agricultural land.  But this is also nonsense — wheat grows and cattle graze oblivious to the gas beneath them being siphoned for use in homes and businesses.

Landowners would clearly like a share of any valuable gas resources under their soils but the fact is that, in Australia, as in England and Canada, landowners do not have rights to subsurface minerals.

For better or for worse, politician that he is, Peter Reith is recommending a share of the gas revenues go to landowners and to regions in order to placate local opposition to exploration.  Generously compensating landowners for damage and inconvenience is one thing but providing them such rights means they obtain windfall gains.

Unfortunately, this means revenues being taken from explorer/developers who take risks and incur expenses in research and exploration.  This will diminish their incentives to seek out hidden mineral wealth, the success of which benefits all in the community.

In the US, unconventional gas production has grown to a level similar to that from conventional wells.  In the process, the country has seen its natural gas prices fall by four-fifths and the nation has been transformed from a net importer to an exporter.

Australia is thought to have comparable unconventional gas resources to the US, meaning long-term prices similar to the current level are possible.  But the Victorian Government is placing the achievement of this in doubt by locking up the gas fearful of political damage from noisy activists opposing any development, perhaps joined by landowners.

Apparently ample Bass Strait gas reserves have reinforced the Government's political timidity in applying a moratorium on drilling.  But with longstanding gas contracts expiring and interstate export facilities coming on stream, Victoria's short-term and possibly long-term prices will rise, hitting consumers and business alike and showing government complacency to have been misplaced.